Question

Suppose a country has not been trading with the rest of the world. If the country...

Suppose a country has not been trading with the rest of the world.

If the country decides to allow free trade and the world price for bananas is greater than their domestic price for bananas,

(a) will the country export or import bananas?

(b) Explain what happens in this situation to consumer surplus, producer surplus, and total surplus as a result of free trade, that is, compare these areas of surplus before trade and after trade.

Show using an appropriate graph.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If Country A opens up their corn market to trade with the rest of the world...
If Country A opens up their corn market to trade with the rest of the world and the global price of corn is lower than the equilibrium price of corn in Country A, then Country A will ________ corn, which will ________ consumer surplus, ________ producer surplus, and ________ total surplus. A. import; increase; decrease; increase B. import; decrease; increase; increase C. export; increase; decrease; increase D. export; decrease; increase; increase E. export; decrease; increase; decrease
Trade barriers Suppose there are only two countries in the world (Home and Rest of the...
Trade barriers Suppose there are only two countries in the world (Home and Rest of the World) which produce and consume wheat. The price of wheat in Rest of the World is equal to 2 and Home is a small country with the following demand and supply functions for wheat: ?h = 50 − 10? ?h = 30 + 10? a. Compute and graph the equilibrium in the absence of trade. What would be the consumer and producer surplus? b....
Tariffs and Quotas      Small Country      A. Effects of tariffs on         - Domestic Price...
Tariffs and Quotas      Small Country      A. Effects of tariffs on         - Domestic Price         - Domestic production         - Imports         - Consumer and producer surplus         - Production and consumption distortion         - Government revenue      B. Quotas         - Effect on export supply and domestic price         - Effects on consumer and producer surplus,           production and consumption distortion         - The quota rent         - Methods of allocating the quota rent      C. Large...
Suppose the country of Microlandia initially free trades with the rest of the world in bananas...
Suppose the country of Microlandia initially free trades with the rest of the world in bananas at the world price of $1000 per ton of bananas. The domestic demand for bananas in Microlandia is QD = 60000 – 15p and the domestic supply is QS = 10p. If the government of Microlandia imposes a tariff of $500 per ton of banana imports, calculate the tariff revenue and the DWL from the tariff.
. A foreign country produces and subsidizes Good Z. The subsidy causes the world price with...
. A foreign country produces and subsidizes Good Z. The subsidy causes the world price with the subsidy to be below the world price without the subsidy. For the parts below, analyze what happens when the foreign country stops its subsidy of Good Z. [You don’t need graphs for this question.] (a) Consider the effect on a small domestic country that produces and exports Good Z. What happens to its consumer surplus, producer surplus, and total surplus for Good Z?...
The small nation of Country 4 institutes an export tariff on Good M, when the world...
The small nation of Country 4 institutes an export tariff on Good M, when the world price of Good M is greater than the domestic no-trade price of Good M. So Country 4 exporters have to pay a tariff (a tax) when they export Good M. (You don’t need a graph for this problem.) (a) What happens to the domestic price of Good M in Country 4? (b) What happens to domestic production of Good M in Country 4? (c)...
Consider the case where the large nation Country 2 imports Good Z and decides to eliminate...
Consider the case where the large nation Country 2 imports Good Z and decides to eliminate its import tariff on Good Z. Suppose there is just one foreign exporter of Good Z, Country 3. (You don’t need to draw graphs for this problem.) When Country 2’s tariff is eliminated, (a) what happens to the price for the foreign sellers of Good Z? (b) what happens to the tax burden on Country 3’s producers caused by Country 2’s tariff? (c) what...
Suppose that a domestic monopolist in a small country faces demand of P = 200 –...
Suppose that a domestic monopolist in a small country faces demand of P = 200 – Q and has a constant MC of $40 per unit. a. (2’)Calculate the value of consumer and producer surplus in autarky. b. (2’)Now suppose that trade occurs with a world price of $50. Calculate the value of consumer and producer surplus. c. (1’)By how much did the monopolist's profits fall as a result of the opening of trade?
2. Suppose that Economica is a large country. The export supply curve is as follows Price    ...
2. Suppose that Economica is a large country. The export supply curve is as follows Price     Quantity 60        60 80       120 100       180 120       240 Assume that Economica imposes a $20 tariff on imported oil. Assume that the world price of oil is initially $80. a. Graph the import demand and export supply curves Calculate b. the price of oil in Economica c. the price of oil in the Rest of the World d. The change in producer surplus
A country imports 5 million pounds of sugar per year and domestically produces another 5 million...
A country imports 5 million pounds of sugar per year and domestically produces another 5 million pounds. The world price of sugar is 25 cents per pound, and unlimited quantities of sugar are available at that price—the world supply curve of sugar is perfectly elastic. Assuming linear schedules, economists estimate the price elasticity of domestic supply to be 0.3 and the price elasticity of domestic demand to be 0.15 at the current equilibrium. a. Use the given price elasticity and...